Archive for the ‘Foreclosures’ Category

When I would lecture in my built environment class, we would talk about one of the blessings of living in the United States: orderly and reliable property records. I can’t vouch for the deeds in the original 13 colonies (except for Massachusetts), but for most of the United States, there are clear chains of title stretching back to the original land surveys to the present The first thing the federal government did after acquiring land from Native Americans (no comment on the legality and morality of this), was to send in land surveyors. As land was released to new settlers and new governments, these survey lines helped to establish property dimensions. Newly organized territorial and county governments established registry of deeds and as land was subdivided and sold, the transfer of land was carefully recorded. In many states, the land title is not officially transferred until it is thus recorded. In many cases, this is accompanied by a small fee paid to the registrar. Of course there are occasional problems: a property line misidentified, a will not properly executed and recorded, or an old mechanics lien unpaid. But for most homes and properties in the United States, one can purchase the property without fear that someone else has a claim to its title.

Until recently. In the real estate frenzy and bubble of the 2000s, banks and mortgage companies decided that the process of dealing with 3500 or so county registry of deeds was too cumbersome When a bank gives a mortgage, a lien is placed on the property. This allows the bank to recover its money in the event of a default or if a mortgagee sells the property. There cannot be clear title or the clear transfer of property without a clean title – the lien protects the mortgage holder, and the absence of a lien protects anew property buyer. This system worked very well up until 2000 or so. Even though the selling of mortgages began in the 1930s and became more widespread in the 1990s, each time a mortgage was sold, the transfer of the mortgage resulted in a recording at the registry office – and the payment of a new fee.

Banks and mortgage lenders and processers disliked this for a couple of reasons. For one thing, they didn’t like the fee. Even though the fee was minimal – not usually much more than $20 – $50, to sell a collection of 10,000 or more mortgages became expensive. And this did not include the expense of filing with hundreds or thousands of registry offices. In addition, the process can be slow, it can take several days to several weeks to show up on a title, so it slowed the securitization of loans. No one could be sure all the loans in a bundle of loans had been properly recorded. Finally, the process of title recording was set up only to accommodate whole mortgages. But when mortgages began to be split up and resold in fancy products such as tranches, the whole notion of how to record the liens became unclear.

To solve this problem, the big mortgage lenders (including Fannie Mae and other quasi independent institutions), set up MERS, the Multiple Electronic Recording Service. MERS solved all the mortgage holder problems. It was fast, national, accommodated new styled financial products and was cheap. MERS deputized thousands of employees at banks and financial institutions to be representatives and enter information and help with record keeping, At the height of the real estate bubble, MERS was involved in millions of mortgages with a staff of less than 100.

A major problem was that MERS did not always bother to follow up transactions by registering them with local registry of deeds. Thus in many states, the transfers of mortgage holdings was either illegal or unrecognized. Worse, MERS itself kept sloppy records of all the transactions and it appears that in many cases, it can’t reconstruct a history of a property from when a homeowner took out a mortgage to the present when a mortgage holder tries to foreclose or discharge a mortgage. Local governments lost out on millions of dollars of revenues.

And today, much of the US property ownership records is in shambles. No one knows who owns property or has a legal lien on it. This is a major problem for foreclosed properties today and will continue to be a problem when property sales increase or mortgages made in the first decade of the 21st century begin to be paid off, a process that will continue until almost 2040. Its going to cast a shade on the property market for decades and make many properties unsellable and unmortgagable. It will promote disinvestment and abandonment. Thanks MERS.